"The Two Midnight" Rule as Explained by a Sioux City Attorney

The updated final rule on “Short Inpatient Hospital Stays” was published in the Federal Register on November 13, 2015. Although seemingly simple in published print, “The Two Midnight” rule creating the “benchmark” and “presumption” for short inpatient hospital stays packs a powerful debate over the benefits and consequences. Read below to learn about the rule with the recent updates from the final rule recently published.

• What is the rule as explained by my three year old son trying to take over my computer? “mnbvcxzxzsc io c3e423efyj,.” (About as helpful to you as his attempt to take over my computer is to my productivity!)

• What is the overview of the rule? As of October 1, 2013, the Centers for Medicare and Medicaid Services (“CMS”) set the “benchmark” payment policy (“The Two Midnight Rule”) for inpatient admissions as generally payable under Medicare Part A if the physician or other qualified professional expects such reasonable and necessary hospital stay to last at least two midnights which is also supported by clear medical records documentation or inpatient admissions for such procedures as listed on the regulations “inpatient-only” list. The rule allows for certain “unforeseen circumstances” resulting in the actual stay to be shorter than the originally expected two midnights.
• Therefore, the rule clarifies that generally hospital stays not extending at least two midnights in lengthy generally are not appropriate for Medicare Part A payments unless an exception applies. The updated final rule adds exception flexibility for CMS to determine on a case-by-case basis if “rare and unusual” circumstances exist for appropriate payment by Medicare Part A. The final rule commentary lists the following factors clearly documented in the medical records to be used on the case-by-case analysis: “beneficiary medical history and comorbidities, the severity of signs and symptoms, current medical needs, and the risk of an adverse event during hospitalization.”
• In addition to the “benchmark” standard, the rule also creates a “presumption” in the Recovery Audit Program of medical necessity for those stays meeting the two midnight time span in regards to CMS medical reviews. Unless other evidence shows indicators of fraud and abuse, reviewers will not subject claims meeting the two midnight rule to an audit. The rule set forth a “Probe and Educate” time period for Medicare Administrative Contracts (MACs) to evaluate understanding of the rule and educate. During this “Probe and Educate” time period Recovery Auditors were prohibited from post-payment auditing on claims with admission dates from October 1, 2 013 to September 30, 2014. The Protecting Access to Medicare Act of 2014 and Medicare Access and CHIP Reauthorization Act of 2015 further extended “Probe and Education” and audit restrictions unless evidence of systemic fraud and abuse is present. Recovery Audit prohibition expires December 31, 2015. 

• Why did CMS create the rule? CMS operates the Recovery Audit Program to identify fraud and abuse for health care service payments by government funds such as Medicare and Medicaid. The essence of review as applies to this rule is whether benefits were appropriately paid as inpatient or outpatient hospital services. For quick review, Medicare Part A pays for inpatient hospital services via the inpatient prospective payment system (IPPS). Medicare Part B covers outpatient hospital services to be paid via the outpatient prospective payment system (OPPS). After collecting data, CMS responded with concerns on high trends with the large amount of money improperly paid for short term stays, frequency of extended outpatient “observation” services as well as error rates for procedures performed and billed in medically unnecessary setting particularly inpatient versus outpatient. CMS determined the need for enhanced clarity over the previous direction in the Medicare Benefit Policy Manual which provided guidance that a hospital stay less than 24 hours should be billed as outpatient services. Such enhanced clarity, the “benchmark”, shall “ensure all beneficiaries receive consistent application of Medicare Part A benefits to medically necessary” medical services.

• What have been the key concerns with the rule? The top criticism of the rule has been that of the rule possibly restricting physicians and other qualified medical professionals from their medical judgment pattern of care. All qualified medical professionals are required to exercise independent medical judgment when caring for patients. Medicare coverage for services, therefore payments to cover patient costs, vary between IPPS and OPPS. CMS reiterates in the updated final rule commentary that the rule does not interfere with physician’s medical judgment. Another key concern is the link between the Two Midnight Rule and Medicare’s three (3) day required inpatient stay for a patient to become Medicare coverage eligible for skilled nursing services. Extended outpatient observation says are not included for purposes of measuring the three (3) day requirement. Another key concern was the inability for health care providers and entities to resubmit a claim under Medicare Part B given the length of time (up to three years) of Recovery Audits. This concern is addressed in the updated final rule. 

• What are the final rule updates to the Recovery Audit Program? It is out with the MACs and RAs and in with the BFCC-QIOs! The update also includes addressing concerns with the Recovery Audit Program. Beneficiary and Family Centered Care – Quality Improvement Organizations now replace Recovery Auditors (RAs) and MACs to review appropriateness of Medicare Part A payments on short stays. CMS determined BFCC-QIOs are better suited with statutory duties to (1) verify reasonable and necessary; (2) quality of services meetings the recognized professional standard of care; (3) whether inpatient services could be effectively furnished on an outpatient basis or in a different type of facility. BFCC-QIOs then refer to Recovery Auditors those evidencing a pattern of abuse or failure to improve. CMS also changed the “look back period” to audit claims down to six (6) months from three (3) years if the claim is submitted within three (3) months from the date of service. Additional Documentation Request (ADR) limitations were established for those new to Recovery Audits. Also, RA complex reviews must be completed within 30 days or the RA loses its contingency fee. Lastly, RAs are required to wait 30 days before sending a claim audit to a MAC for a payment adjustment.

• Wait a minute, one last question, when does the two midnight clock start? In reviewing The Two Midnight Rule, the total services of care provided at the hospital are considered. Therefore the clock starts when services start including as a regular outpatient for ER time, observation and all other appropriate pre and post inpatient care.

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